It's Show Time

The nation's first grower-owned biomass cooperative has shown the world that the cooperative model can be successful and is ready to build on that success.

By Rona Johnson

At a time when many biomass project developers are searching for financing and developing systems capable of handling thousands of tons of biomass, Centerview, Mo.-based Show Me Energy Co-op has already done that and is now gearing up to expand.

Although co-op members couldn't reveal all of their expansion plans because some are still in the early planning stages, they did say they are researching the possibility of building a power plant on site to create green electricity, and negotiating a contract with another utility in the area. Show Me Energy Chairman Steve Flick says the co-op could make an announcement regarding its expansion plans by April or May.

Currently, the producer-owned co-op processes biomass into pellets that it sells to a local utility, to poultry producers in the area, who use it to heat their chicken and turkey barns, and for home heating. "We've shipped material all over the world," Flick says.

The development process wasn't easy, Flick says, but they were successful because they answered two questions before they started their equity drive: How are we going to move all this material? How are farmers going to make money in the process? "The nucleus of the group started in 2005 and we began by studying feedstock availability, the sustainability, the life-cycle assessments, and how can we provide positive impacts on the rural landscape and create green jobs at the same time," Flick says. The group then went on to figure out what and where would be the best potential for marketing their biomass pellets. Once they had a handle on those, they came up with what they thought was a good business model and went out to find investors.

"We sold shares into the co-op as farmers selling to farmers," Flick says. "We pitched it to small-town America within a 100-mile radius of the proposed plant site. We knew we were successful because we raised a lot of money very quickly."
Having the farmers, who would be delivering the biomass to the plant, on board was key to the project's success, Flick says. "We believe that no matter what technology anybody has-power or liquid fuels-if it's not valuable to the farmers they won't participate in the project," he says. "They have to have skin in the game."

The co-op was set up and then closed after the organizers raised their initial investment. It was then reopened in the fall to raise money for capital expansion, Flick says. "We will have some minimal investment in March but that's about it," he says. "It's really only for Missouri residents who live within the local area."

The co-op's equity drive got a boost from the state of Missouri in the form of tax credits for producers who bought shares. "The Missouri Department of Agriculture has been our No. 1 partner through an organization called the Missouri Agriculture Small Business Development Authority," Flick says. In 1988, the legislature granted the Missouri Agriculture Department the authority to set up an organization allowing the state to partner with new-generation cooperatives. "When we sold our shares in that first round, the state of Missouri gave tax credits to the producers who bought those shares." Farmers could then sell their tax credits or use them to reduce their tax liability. "It wasn't like you got a grant and if the thing doesn't work then the state ends up owning it, this is real money on the line," Flick says.

The technology the cooperative uses was designed in-house by a group of farmers and engineers who license it to others who want to build a pellet plants in their local areas.

Although the co-op hasn't paid out dividends to its members yet, it hopes to soon. "We probably won't do that for another year because we are constantly re-investing and reducing debt load," Flick says.

Delivering the Biomass

The co-op has 650 members from 28 counties, supplying everything from storm- and ice-damaged wood, switchgrass, native grasses, stubble, cereal straws, corn stalks and milo stubble. The plant takes in 10 to 15 truckloads of biomass per day, which doesn't impact its neighbors because it was built in a rural area. "We believed the plant had to have a minimal impact on the area that we were living and working in," Flick says. The site was also chosen because it has access to two hard surface roads and a rail line

About 90 percent of the biomass that comes into the plant is in the form of round bales, Flick says. The rest is transported in on walking floors. The 16-acre site only allows the cooperative to store 3,000 bales so farmers store the material on their farms until the co-op needs it.

For famers, both members and nonmembers, who deliver to the plant, it's a way to get more value from the crops they already grow. For example, Flick and other members who grow grass seed used to burn the straw after they harvested the seed. Now the straw is baled and delivered to the pellet plant, where it can fetch $40 to $60 per ton, based on its net energy value.

The plant also benefits farmers who for economic reasons have had to change their cropping systems.

Since the early 1950s, Mike Rape's family supplied sod for the turf grass industry for new housing. Until the collapse of the housing market, his farming operation consisted of 100 percent sod. "When we first formed this co-op three or four years ago, I could see there was going to be a tremendous downturn in the housing market, and am now rotating out of the sod," says Rape, who is a past president of the Kansas City Turf Association and is currently on Show Me Energy's board of directors. "We now farm 900 acres and we are going to row crops and energy crops and only going to have maybe 100 to 200 acres of sod."

The sod business is about 80 percent of where it was four or five years ago, when the eight-county region around Kansas City, Mo., was generating 10,000 to 13,000 housing permits a year. Rape says they will barely reach 2,000 permits in 2009.
Rape believes the co-op created a perfect opportunity for him, and that between the switch to row crops and the biomass that he delivers to the plant, he will make up for any losses he has incurred, especially when the contract they are currently negotiating with the power company is signed and the plant's production is ramped up. "When we get this up and running to full capacity this should substantially increase and subsidize my loss from the sod business," he says. "I personally think that it could be more beneficial in years to come because the downturn in the housing market is going to be there for a while."

He let some of his sod fields grow up and then baled the biomass from those fields, and he plans to plant some higher yielding biomass crops that the co-op is experimenting with so that I can get more tons per acre. "I raised zero row crops in the past, so as far as food for fuel in my case, we did not do the traditional row crops at all and never have."

Rape says the energy crops are ideal for planting on marginal ground and areas where the ground slopes. "You can plant energy crops there because you don't disturb the soil and don't have to worry about erosion like you would if you planted traditional row crops."

The co-op has also created opportunities for hobby farmers and others whose primary income isn't derived from farming.

Mark Schuchmann, a co-op member and an electrical contractor, became interested in joining the co-op because he had some family farmland that was planted to native prairie grasses that could provide him with some extra income. "The beauty of the co-op is that a lot of members are farmers but there are others who are bi-vocational, who work at another job but also do a little bit of farming," he says. "I'm one of those people. I don't have a lot of acres but I have enough to make my commitment."

Schuchmann and Rape also provide extra income for custom balers because they currently have no equipment of their own, and the truckers who deliver the bales to the co-op.

The co-op members are also able to take advantage of the federal Biomass Crop Assistance Program, which pays producers or entities that deliver eligible biomass material to designated biomass conversion facilities that will convert it into heat, power, biobased products or biofuels. "For every dollar that we pay the producer, the federal government subsidizes them with another dollar, which will continue for two years," Flick says. The cooperative was the first to apply and receive BCAP benefits. "We were the first BCAP area in the U.S. and it's working," Flick says. "It was a little confusing because we're creating an industry shift from traditional DCP (Direct and Counter-Cyclical Program) payments and CRP (Conservation Reserve Program) and all this has to flow down from the national office to the state office to the county offices. There was quite a learning curve involved for everyone including us." Flick says they are now looking forward to the next round of BCAP, which will focus on dedicated energy crops. "There could be 25,000 acres of dedicated energy crops planted just for the co-op that in turn would be a wonderful feed supply that could increase our production," he says. "We don't want to sound arrogant here but we believe we are on the right track and we're moving ahead with exporting some of our material."

One of the co-op's marketing objectives is to make sure end users understand the difference between a pellet and an engineered fiber fuel, which is what the co-op produces. "It's important to distinguish between the two because an engineered fiber fuel has three things that bring it to bear: certification showing that it was harvested sustainably; all the bad things that are usually found in biomass including silica, nitrogen, magnesium and potassium that will foul boilers [is removed]; third is our experience in using it," Flick says.

Co-op's Impact

Show Me Energy co-op executives believe they are only in the beginning stages of a bioenergy economy and that much work needs to be done to build the industry. The co-op plans to send a representative to major universities to educate graduating seniors in agriculture about producing bioenergy crops. In May, I will be running to all the big 12 schools as part of our outreach," Flick says. "It's got to start with the next generation. We're just setting the foundation right now."

Flick is convinced that the cooperative model is the key to growers wanting to participate in the biomass industry, but the producers have to be willing to take risks and invest their own money.

"It takes five to 10 guys with a checkbook willing to take a risk to set up a co-op just like we did," Flick says. "We didn't know it was going to be successful and it means money on the line, hard work and a vision, and out of those initial people, you need a ramrod and you need somebody who will keep those people together politically," Rape says that Flick is the ramrod who organized the co-op and keeps everyone on track. "Steve is the ramrod," Rape says. "He is the hardest driving individual I have ever met."

Co-op organizers also kept the cost of the plant to a minimum, which made it attractive to investors. "We're not a $50 million project," Flick says. "We built the plant for less than $10 million. We think economies of scale are local and we consider ourselves the new microbrewery on the block."

Flick says he's gotten calls from some large ethanol co-ops who are amazed at the progress that the co-op has made despite the fact that they had to write the book on biomass cooperative development.

"We're the real deal," Flick says. "We grind a bale every 10 minutes, we suck the dust, we have the breakdowns, we know what has gone right and gone wrong and everybody that says they want to do this. I say put your money where your mouth is, build it, run it, show me." BIO